The U.S. South’s Timber Sector in 2005: A Prospective Analysis of Recent Change David N. Wear, Douglas R. Carter, and Jeffrey Prestemon ■ Except during very brief periods, total timber production grew between 1962 and 1998. ■ Between 1998 and 2002, total timber production declined by about 9 percent, back to 1995 levels. ■ Prices for softwood products declined between 1998 and 2004. For softwood pulpwood, the price decline was dramatic. By 2004, inflation-adjusted prices for softwood pulpwood had fallen to their lowest levels since 1997. ■ Prices for hardwood products had not turned downward through 2004. ■ Based on price and quantity patterns, we identify three phases of development in southern timber markets: a moderate growth phase from 1977 to 1986, a rapid growth phase between 1986 and 1998, and an adjustment phase between 1998 and 2004. ■ The moderate growth phase was characterized by expanding demand and supply. The rapid growth phase was dominated by growth in demand, which outstripped supply growth for wood products. The adjustment phase was dominated by declines in demand. ■ During the rapid growth period, hardwood sawtimber prices grew steadily but output grew only slightly. This suggests a possible contraction of available hardwood sawtimber inventories and supply. ■ Consumption of lumber in the United States has grown at a lower rate than housing starts, indicating some substitution away from lumber as a building material. ■ Both nonwood and engineered wood products have substituted for lumber in many applications. For example, the share of floors, walls, and roofs made with wood is about constant but there is a shift toward greater use of engineered wood products. ■ Electronic media are substituting for paper. ■ A majority of pulping capacity in the United States is located in the South, but this share has declined since the mid-1990s. ■ Pulping capacity in the South, an indicator of long-term demand, has declined by 16 percent since 1998. ■ Increasing world demand for paper products is leading to expansion in paper production capacity in countries other than the United States. ■ Shifts in capacity indicate that the United States has lost some of its comparative advantage for producing paper for the world market. Possible causes of this decrease in comparative advantage are disadvantageous resource and labor costs and location of the United States relative to major world demand centers. ■ Overall, there is no indication that domestic demand for southern pulpwood will increase. ■ Softwood lumber production capacity in the South has increased steadily in recent years (1997–2003). ■ Softwood lumber
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The U.S. South’s Timber Sector in 2005:
A Prospective Analysis of
Recent ChangeDavid N. Wear, Douglas R. Carter,
and Jeffrey Prestemon
■ Except during very brief periods, total timber production grew between 1962 and 1998. ■ Between 1998 and 2002, total timber production declined by about 9 percent, back to 1995 levels. ■ Prices for softwood products declined between 1998 and 2004. For softwood pulpwood, the price decline was dramatic. By 2004, inflation-adjusted prices for softwood pulpwood had fallen to their lowest levels since 1997. ■
Prices for hardwood products had not turned downward through 2004. ■ Based on price and quantity patterns, we identify three phases of development in southern timber markets: a moderate growth phase from 1977 to 1986, a rapid growth phase between 1986 and 1998, and an adjustment phase between 1998 and 2004. ■ The moderate growth phase was characterized by expanding demand and supply. The rapid growth phase was dominated by growth in demand, which outstripped supply growth for wood products. The adjustment phase was dominated by declines in demand. ■ During the rapid growth period, hardwood sawtimber prices grew steadily but output grew only slightly. This suggests a possible contraction of
available hardwood sawtimber inventories and supply. ■ Consumption of lumber in the United States has grown at a lower rate than housing starts, indicating some substitution away from lumber as a building material. ■
Both nonwood and engineered wood products have substituted for lumber in many applications. For example, the share of floors, walls, and roofs made with wood is about constant but there is a shift toward greater use of engineered wood products. ■ Electronic media are substituting for paper. ■ A majority of pulping capacity in the United States is located in the South, but this share has declined since the mid-1990s. ■ Pulping capacity in the South, an indicator of long-term demand, has declined by 16 percent since 1998. ■ Increasing world demand for paper products is leading to expansion in paper production capacity in countries other than the United States. ■ Shifts in capacity indicate that the United States has lost some of its comparative advantage for producing paper for the world market. Possible causes of this decrease in comparative advantage are disadvantageous resource and labor costs and location of the United States relative to major world demand centers. ■ Overall, there is no indication that domestic demand for southern pulpwood will increase. ■ Softwood lumber production capacity in the South has increased steadily in recent years (1997–2003). ■ Softwood lumber
About the AuthorsDavid N. Wear, Project Leader, U.S. Department of Agriculture Forest Service, Southern Research Station, Research Triangle Park, NC 27709; Douglas R. Carter, Associate Professor, University of Florida, Gainesville, FL 32611; and Jeffrey Prestemon, Research Forester, U.S. Department of Agriculture Forest Service, Southern Research Station, Research Triangle Park, NC 27709.
Cover photo: A beautiful spring day in the Southeastern United States is seen in this SeaWiFS image. Several smoke plumes are visible including
a rather large one that originates in Georgia, midway between the Savannah and Altamaha rivers. A good-sized plume of turbid water can also be seen flushing out of Mobile Bay. Photo courtesy of the SeaWiFS
Project, NASA/Goddard Space Flight Center, and ORBIMAGE.
January 2007
Southern Research StationW.T. Weaver Blvd.
Asheville, NC 28804
This first update of the Southern Forest Resource Assessment published in 2002 was produced in collaboration with the Southern Group of State Foresters.
The U.S. South’s Timber Sector in 2005:
A Prospective Analysis of
Recent Change
David N. Wear, Douglas R. Carter, and Jeffrey Prestemon
List of Figures ................................................. iv
The U.S. South’s Timber Sector in 2005: A Prospective Analysis of Recent ChangeDavid N. Wear, Douglas R. Carter, and Jeffrey Prestemon
Abstract—Forest product markets are an important part of rural economies of the U.S. South, but recent changes in timber markets have raised questions about the future. Several factors have altered forest products markets since the late 1990s, including industry consolidations and associated changes in land ownership, changes in domestic consumption patterns and international trade patterns, and depreciation and closure of older processing facilities. The focus of this assessment of timber markets is on understanding how these and other demand and supply factors have affected the markets for various timber products. Our findings suggest that the demand for domestically produced timber products has declined somewhat in the United States, as domestic demands as well as exports have fallen. At the same time, the supply of domestically produced timber products has continued to expand since the late 1990s. The net result of these demand and supply changes may be (a) a decline in timber product output and (b) a disproportionately strong decline in associated prices. An evaluation of investment of wood products firms in manufacturing capacity within the region provides insights into future production potential. Paper production capacity has declined since the late 1990s, while lumber production capacity has remained near 1990s levels. Indications are, therefore, that demand for pulpwood to produce paper may not rebound to late 1990s levels in the foreseeable future. However, persistent low prices for softwood pulpwood could indicate long-term opportunities for the manufacture of other products from this product class. Long-term demand for solid wood products appears strong, signaling that a relatively favorable investment climate should exist in this part of the forest sector.
Keywords:Demand and supply factors, forest products markets, investment climate, long-term demand, paper production capacity.
Figure 1—Roundwood harvests in the U.S. South by product. (Sources: U.S. Department of Agriculture Forest Service timber product output reports.)
12,000
10,000
8,000
6,000
4,000
2,000
0
1952
1957
1962
1967
1972
1977
1982
1987
1991
1996
2001
Mill
ion
cubi
c fe
et
Fuelwood
Veneer
Pulpwood
Saw logs
Other Other
Fuelwood
Veneer
Pulpwood
Saw logs
Hardwood Softwood
Softwood sawtimberSoftwood pulpwood
Hardwood pulpwoodOther
12,000
10,000
8,000
6,000
4,000
2,000
0
Mill
ion
cubi
c fe
et
1953
1957
1961
1965
1969
1977
1981
1973
1985
1989
1993
1997
2001
Figure 2—Roundwood production in the U.S. South, all products. (Sources: U.S. Department of Agriculture Forest Service timber product output reports and see appendix for explanation of interpolation procedures.)
Figure 3—Roundwood production in the U.S. South, selected products. (Sources: U.S. Department of Agriculture Forest Service timber product output reports and see appendix for explanation of interpolation procedures.)
3.5
3
2.5
2
1.5
1
0.5
0
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
Inde
x (1
977
= 1
)
Hardwood sawtimberHardwood pulpwood
Softwood sawtimberSoftwood pulpwood
Figure 4—Real stumpage prices in the U.S. South by product. (Source: Timber Mart-South.)
The U.S. South’s Timber Sector in 2005: A Prospective Analysis of Recent Change4
Key Observations— Recent Trends■ Except during very brief periods, total timber production grew between 1962 and 1998.
■ Between 1998 and 2002, total timber production declined by about 9 percent, back to 1995 levels.
■ Prices for softwood products declined between 1998 and 2004. For softwood pulpwood, the price decline was dramatic. By 2004, inflation-adjusted prices for softwood pulpwood had fallen to their lowest levels since 1997.
■ Prices for hardwood products had not turned downward through 2004.
■ Based on price and quantity patterns, we identify three phases of development in southern timber markets: a moderate growth phase from 1977 to 1986, a rapid growth phase between 1986 and 1998, and an adjustment phase between 1998 and 2004.
3.5
3
2.5
2
1.5
1
0.5
0
1,800
1,600
1,400
1,200
1,000
800
600
400
200
01977 1980 1983 1986 1989 1992 1995 1998 2001
Mill
ion
cubi
c fe
et
Inde
x (1
977
= 1
)
Harvest Price
Figure 5—Hardwood pulpwood harvest and price in the U.S. South. (Sources: Timber Mart-South and various Resources Planning Act timber product output reports.)
2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
3,500
3,000
2,500
2,000
1,500
1,000
500
01977 1980 1983 1986 1989 1992 1995 1998 2001
Mill
ion
cubi
c fe
et
Inde
x (1
977
= 1
)
Harvest Price
Figure 6—Softwood sawtimber harvest and price in the U.S. South. (Sources: Timber Mart-South and various Resources Planning Act timber product output reports.)
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
3,000
2,500
2,000
1,500
1,000
500
0
Mill
ion
cubi
c fe
et
Inde
x (1
977
= 1
)
Harvest Price
1977 1980 1983 1986 1989 1992 1995 1998 2001
Figure 7—Softwood pulpwood harvest and price in the U.S. South. (Sources: Timber Mart-South and various Resources Planning Act timber product output reports.)
5
■ The moderate growth phase was characterized by expanding demand and supply. The rapid growth phase was dominated by growth in demand, which outstripped supply growth for wood products. The adjustment phase was dominated by declines in demand.
■ During the rapid growth period, hardwood sawtimber prices grew steadily but output grew only slightly. This suggests a possible contraction of available hardwood sawtimber inventories and supply.
Figure 9—Distance in miles by county from the forested center of the county to the closest pulpmill or chipmill. White dots are pulpmills and chipmills within the Southern States. Note that the universe of all pulpmills and chipmills within the United States and a circuity factor of 1.4 were used in the distance calculation. (Source: R. Huggett, preliminary findings, economics of biomass removals, U.S. Department of Agriculture Forest Service, Research Triangle Park, NC.)
Figure 10—U.S. pulp output processing capacity, 1961–2000. (Source: Smith and others 2004.)
Figure 11—Pulpmill capacity in the United States and the U.S. South, 1983–2003. (Sources: Forest Resources Association; U.S. Department of Agriculture Forest Service, Southern Research Station; Pulp & Paper North American Factbook; and Timber Mart-South.)
The U.S. South’s Timber Sector in 2005: A Prospective Analysis of Recent Change�
Figure 13—Average annual rates of change in pulp production for various countries, 1995 to 2002. (Sources: Pulp & Paper International and Paperloop.com.)
Figure 17—Average distance in miles by county from the forested center of the county to the closest five sawmills within 150 miles. White dots are sawmills within the Southern States. Note that the universe of all sawmills within the United States was used in the distance calculation. (Source: R. Huggett, preliminary findings, economics of biomass removals, U.S. Department of Agriculture Forest Service, Research Triangle Park, NC.)
11
Figure 20—Southern panel production. (Source: The Engineered Wood Association.)
Figure 35—U.S. lumber exports from southern customs districts. (Source: U.S. International Trade Commission.)
Figure 36—Particleboard, oriented strand board, and wafer board imports and the balance of trade (BOT). (Source: U.S. International Trade Commission.)
1989
-3,000
-2,000
-1,000
0
1,000
2,000
3,000
4,000
US
$ (m
illio
n)
Total Canada BOT
1990
1991
1992
1993 19
9419
9519
9619
9719
9819
9920
0020
0120
0220
0320
04
Key Observations—Demand■ Consumption of lumber in the United States has grown at a lower rate than housing starts, indicating some substitution away from lumber as a building material.
■ Both nonwood and engineered wood products have substituted for lumber in many applications. For example, the share of floors, walls, and roofs made with wood is about constant but there is a shift toward greater use of engineered wood products.
■ Electronic media are substituting for paper.
■ A majority of pulping capacity in the United States is located in the South, but this share has declined since the mid-1990s.
■ Pulping capacity in the South, an indicator of long-term demand, has declined by 16 percent since 1998.
■ Increasing world demand for paper products is leading to expansion in paper production capacity in countries other than the United States.
■ Shifts in capacity indicate that the United States has lost some of its comparative advantage for producing paper for the world market. Possible causes of this decrease in comparative advantage are disadvantageous resource and labor costs and location of the United States relative to major world demand centers.
■ Overall, there is no indication that domestic demand for southern pulpwood will increase.
■ Softwood lumber production capacity in the South has increased steadily in recent years (1997–2003).
■ Softwood lumber production capacity in other regions of the United States outside of the South has declined.
■ There is no indication of declining demand for softwood sawtimber and some indication of increasing demand.
■ Expansion in panel capacity indicates ongoing strong demand for low-quality hardwood and softwood material for engineered wood panels.
■ Wood pulp imports are a relatively small portion of wood products consumption in the South (between 2 and 3 percent).
The U.S. South’s Timber Sector in 2005: A Prospective Analysis of Recent Change20
■ Although small, wood pulp imports to southern customs districts, and especially imports from Brazil, have increased since 1998.
■ Up to 8 percent of domestic demand for pulpwood has been displaced by changes in trade, the majority (5 percent) by loss of wood chip export markets.
■ Almost all lumber imports are from Canada, with a small but increasing share from South America.
■ Imports from Canada do not displace demand for treated southern pine lumber.
■ Exports of southern pine lumber are very small and have declined substantially since 1998.
Figure 41—Real prices of hardwood and softwood pulpwood in the U.S. South. (Source: Timber Mart-South.)
Figure 40—Acres by forest management type. (Source: U.S. Department of Agriculture Forest Service, Forest Inventory and Analysis data summarized by Conner and Hartsell 2002.)
1980 1985 1990 1995 2000 2005
40.00
30.00
20.00
10.00
0.00
US
$ pe
r co
rd (
2004
= 1
00)
HardwoodSoftwood
1975
0
50
100
150
200
250
1950 1960 1970 1980 1990 2000
Acr
es (
mill
ion)
Planted Nonplanted
0
10
20
30
40
50
60
70
80
1950 1960 1970 1980 1990 2000
Acr
es (
mill
ion)
Planted pineNatural pine Oak–pineUpland hardwoodLowland hardwood
Figure 42—Total area planted in trees in the U.S. South, all ownerships (industry, nonindustrial private, and public) and the industry ownership. [Sources: 1945–99: Robert F. Moulton (2000); 2000–04: Steve Chapman, Georgia Forestry Commission (2005).]
Key Observations—Supply■ Timberland area within the South was relatively stable through the 20th century.
■ Ongoing urbanization is focused in the Piedmont and along the coasts. Forest loss is projected by recent research to be highest in the Southeast (from Virginia to Florida).
■ Agricultural prices are such that increased timber prices or a reduction in agricultural subsidies could lead to an expansion of pine plantations on agricultural lands.
■ Timber sector studies project that the South could experience changes ranging from no net loss of forest to a net loss of 31 million acres by 2040 (16 percent of forests), depending on the future price of timber.
■ In spite of strong growth in prices of hardwood pulpwood, there has been little investment in hardwood production, i.e., hardwood plantations.
25
Figure 44—Forecast of the percent of industry timberland in a land conversion-value class in Georgia, 2010. (Source: Wear and Newman 2004.)
■ If planting that was subsidized under the Soil Bank and CRPs is not counted, planting of pines increased at a steady rate between 1945 and 1998.
■ Except during the Soil Bank and CRP periods, industry has done a disproportionately high share of tree planting (45 to 70 percent of planting with only about 20 percent of timberland).
■ Tree planting has served as both replacement and expansionary investment. In the 1990s, levels of expansionary and replacement investment were each about 1 million acres per year.
■ Recent declines in planting indicate a reduction in expansionary investment since the late 1990s.
■ The supply effects of recent reductions in expansionary investment will not be felt for some time.
■ Forest products firms, which hold a disproportionately high share of the forest capital, have been selling much of their lands, about 50 percent by 2005, compared to 1999 levels.
■ Some industry land sales are explained by urbanization pressures, but most of the land sold is expected to remain in timber production in the near term.
■ The shift toward TIMO management may entail more parcelization and fragmentation of timberland ownership. The shift may also lead to a less stable supply of timber, more volatile timber prices, and a slower rate of increase in the area of pine plantations.
■ Divestiture of industry lands could lead to lower overall investments in timber research and development, leaving producers in the U.S. South less able to compete against foreign producers in the long run.
1. The demand for domestically produced timber products has shifted downward in the United States. Consumption of solid wood products has not grown at the same pace as housing starts, and the per capita consumption of paper has declined over the past 10 years, after being relatively stable for many years. These declines in domestic production and per capita consumption of some timber products have been coupled with a substantial decline in the off-shore demand for U.S.-produced timber products. Exports of wood chips fell from its peak in 1998 to nearly zero exports in 2003.
2. The supply of domestically produced timber products has continued to expand outward since the late 1990s. Timber supply is a function of the amount of land dedicated to forest growing and the intensity of management. The area of timberland has remained fairly constant since the 1970s, and the area of intensively managed (planted) forests continued to expand through the 1990s (that is, expansionary investment continued even after production and prices fell). Because timber is a long-lived asset, supply could continue to move outward and dampen prices for years. The effects of recent declines in planting may not be felt for several more years.
3. Fundamentals of economics indicate that a substantial downward shift in demand coupled with a constant to increasing supply leads to (a) a decline in output and (b) a disproportionately strong decline in prices. This is exactly what has been observed in pulpwood markets—especially softwood pulpwood markets—since 1998.
The U.S. South’s Timber Sector in 2005: A Prospective Analysis of Recent Change26
4. An evaluation of investment of wood products firms in manufacturing capacity within the region provides insights into futre production potential. Capacity for lumber production has remained strong, while capacity for paper production has declined since the late 1990s. Indications are, therefore, that demand for pulpwood to produce paper may not rebound to early 1990s levels in the foreseeable future. Long-term demand for solid wood products appears strong, however.
5. Persistent low prices for softwood pulpwood may indicate opportunities for the manufacture of other products from this product class. Indeed, several firms have recently announced plans to build plants to produce OSB in many of the areas where pulpmills have closed. Announced plants are not always built, but the number of announcements indicates that expansion in this sector will provide additional demand for pulpwood in the next 5 years.
6. Upward pressure on hardwood pulpwood prices and downward pressure on softwood pulpwood prices combine to provide incentives to shift industrial production toward utilization of softwoods. Indeed, after a long period of substituting hardwood for softwood in paper production, we might expect to see an increase in the share of softwood inputs.
7. Imports of hardwood chips into the South remain relatively small compared to the total consumption. However, it appears that if hardwood chip prices rise above thresholds already reached in parts of the region, e.g., in Florida, then imports from South America become a viable alternative to domestic production. The existence of this backstop supply of plentiful eucalyptus chips indicates that future hardwood pulpwood prices may have a ceiling in the region.
Throughout this report, we document the sources of data upon which discussions are based. In this section we document cases where additional analysis was applied to the published data.
Wear, David N.; Carter, Douglas R.; Prestemon, Jeffrey. 2007. The U.S. South’s timber sector in 2005: a prospective analysis of recent change. Gen. Tech. Rep. SRS-99. Asheville, NC: U.S. Department of Agriculture, Forest Service, Southern Research Station. 29 p.
Forest product markets are an important part of rural economies of the U.S. South, but recent changes in timber markets have raised questions about the future. Several factors have altered forest products markets since the late 1990s, including industry consolidations and associated changes in land ownership, changes in domestic consumption patterns and international trade patterns, and depreciation and closure of older processing facilities. The focus of this assessment of timber markets is on understanding how these and other demand-and-supply factors have affected the markets for various timber products. Our findings suggest that the demand for domestically produced timber products has declined somewhat in the United States, as domestic demands as well as exports have fallen. At the same time, the supply of domestically produced timber products has continued to expand since the late 1990s. The net result of these demand-and-supply changes may be (a) a decline in timber product output and (b) a disproportionately strong decline in associated prices. An evaluation of investment of wood products firms in manufacturing capacity within the region provides insights into future production potential. Paper production capacity has declined since the late 1990s, while lumber production capacity has remained near 1990s levels. Indications are, therefore, that demand for pulpwood to produce paper may not rebound to late 1990s levels in the foreseeable future. However, persistent low prices for softwood pulpwood could indicate long-term opportunities for the manufacture of other products from this product class. Long-term demand for solid wood products appears strong, signaling that a relatively favorable investment climate should exist in this part of the forest sector.
Keywords: Demand and supply factors, forest products markets, investment climate, long-term demand, paper production capacity.
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